Bond Amortization Schedule Th e following is a partially completed amortization
ID: 2588293 • Letter: B
Question
Bond Amortization Schedule
Th e following is a partially completed amortization schedule prepared for the Liggett Company
to account for its three-year bond issue with a face value of $50,000. Th e schedule covers the fi rst
three semiannual interest payment dates. Amounts are rounded to the nearest dollar. Compute the
missing numbers
ineterest
paid
bond
expense
premium
amortized
bonds payable
carrying amount
I just dont understand how to calculate the effective semiannual interest rate.
could you add some more information about calculating the effective interest rate in this chapter?
yearineterest
paid
bond
expense
premium
amortized
bonds payable
carrying amount
0 $52,537 1/2 (1) $2,627 (2) 52,164 1 $3,000 (3) $392 (4) 1 1/2 (5) (6) (7) (8)Explanation / Answer
Effective semiannual rate = $ 2,627 / $ 52,537 * 100 = 5 %.
Bond Amortization Table:
52,537 x 5 % = 2,627; 3,000 - 2,627 = 373; 52, 537 - 373 = 52,164
52,164 x 5 % = 2,608; 3,000 - 2,608 = 392; 52,164 - 392 = 51,772
Year Amount Paid Interest Expense Premium Amortized Bond Premium Carrying Amount Bond Payable Carrying Amount 0 $ 2,537 $ 52,537 1/2 $ 3,000 $ 2,627 $ 373 $ 2,164 52,164 2 3,000 2,608 392 1,772 51,772 1 1/2 3,000 2,589 411 1,361 51,361